Avoiding Costly Homebuying Mistakes: Regulatory Surprises

by Lawrence Kostaneski, PE


There are those who believe that the government we vote into office periodically is the only one having any impact on our home or neighborhood. The fatal attraction in this belief is its partial truth: yes, the city, county, township, parish or whatever it may be called - I'll call it public government - does have primary authority. But there exist other levels of control that can have just as much authority as your public government.

Neighborhood associations, road or water or sewer districts, homeowners' associations and similar groups - which I'll call private governments - can control an amazing number of issues. Many states allow the formation of entities that have limited power over your home and neighborhood. It gets particularly interesting when the two types of governments overlap or conflict. The following are just some of the areas where public and private governments can cause serious confusion and sometimes expense for those who buy homes in areas with this situation.

There are many cases where the public government does not take responsibility for the roads, water, sewer, or some other feature that exists in a subdivision. This may have been negotiated 20 years prior to your arrival. Unless a buyer knows before the purchase - which I have found not always to be the case - that these private governments exist, you may have great difficulty coming to grips with extra bills for service.

Here is a typical example based on a true incident. A couple purchased a home in a subdivision recently annexed by the adjacent city. A city street accessed the subdivision, but the roads inside the subdivision were private. The buyers bought their home at the intersection of the city street and one of the entrances into the subdivision. They said they asked if the street belonged to the city and were told it was: true for one, not the others. No, the subdivision streets were not signed private or anything, they had regular street names.

So, this distraught couple shows up in my office wanting to confirm the status of the streets - after they bought the home, of course, and after they get a bill for road upkeep. I took them to the map and explained that the street north of their house was public, but the 4 miles of streets in the subdivision were private and the responsibility of the people living there.

They decided to sue everyone in sight. As a representative for the city, I was asked to attend a meeting with attorneys for all sides, the couple, the real estate agent, the bank, two members of the road association, the butcher, the baker and candlestick maker. (just kidding about those last ones.)

I sat there wondering when someone would ask the obvious question. Finally, the banker exposed the smoking gun: the signatures of the couple on a document included in the loan package which stated that the buyers knew about the road association and the fees required by same. I had the impression the buyers had heard this before. I think the banker brought it up again at the meeting for dramatic effect. It got ugly after that and I politely made my excuses and left the meeting.

Since I was never deposed or ordered to appear in court, I assume the matter was resolved. I doubt if the association made any concessions. I drove by the house 3 months later: it was for sale.

I believe this couple signed the document. They did not, however, understand its implications. Perhaps they didn't even bother to read it. An attractive house in a very nice area may have created a degree of impatience that left them signing everything and anything after they settled on a price.

You should be very careful when signing anything, of course, but pay attention to papers in the loan closing package that appear out of place. Any document requiring acknowledgment of a "private" government's authority should cause you to take a hard look at what you are signing.

Next Time: Zoning horrors.


Mr. Kostaneski is a registered professional engineer, former government regulatory official, owner of an engineering consulting firm and author of "A Home Buyer's Guide To Reality". He regularly contributes articles to The Dollar Stretcher.

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